financial statement is used by outside decision makers, outside decision makers thoroughly analyze, interpret the outcomes of the business and make decision for their investment, most of the outsiders decision makers interpret the companies performance one by one, selecting the companies for future investment, every investor wants to secure his or her savings therefore before investing in any company they check the financial statement and invest in such a platform that they increase their earnings. financial statement are designed in such a form to meet the needs of creditors and investors. the creditors or investors are concern to solvency and profitability of business organization.the creditors are looking that how much the firm or business have ability to pay its debts as they come dues,
the creditors invest in such a firm which has the ability to pay the dues in the limited time frame. while insolvency can create a negative image in view of creditors and investors.if the business operate unprofitably and retain earning are negative amount indicating the extent to which the unprofitability operations have decrease the stockholders equity. therefore the creditors and investors are interested in analyzing the business solvency of the organization, but they are even more interested in analyzing business profitability. profitability of the business can even more increase the owners equity. if the company even more lose its resources or decrease its performance will lead to lose its existence, therefore most users of the financial statements can study these statement carefully for clues to the companies solvency and future profitability. solvency and profitability may be independent of each other, a business may operating profitability but nevertheless run out of the cash and thereby insolvent on the other hand if the firm or business operate profitability during a given year yet have enough cash to pay its bills and remain solvent. if a business is to survive, it must remain solvent in the long run and operate profitably.
adequate disclosure can provide the necessary facts and figure of the business for proper interpretation of the financial statement of the company.
the creditors invest in such a firm which has the ability to pay the dues in the limited time frame. while insolvency can create a negative image in view of creditors and investors.if the business operate unprofitably and retain earning are negative amount indicating the extent to which the unprofitability operations have decrease the stockholders equity. therefore the creditors and investors are interested in analyzing the business solvency of the organization, but they are even more interested in analyzing business profitability. profitability of the business can even more increase the owners equity. if the company even more lose its resources or decrease its performance will lead to lose its existence, therefore most users of the financial statements can study these statement carefully for clues to the companies solvency and future profitability. solvency and profitability may be independent of each other, a business may operating profitability but nevertheless run out of the cash and thereby insolvent on the other hand if the firm or business operate profitability during a given year yet have enough cash to pay its bills and remain solvent. if a business is to survive, it must remain solvent in the long run and operate profitably.
adequate disclosure can provide the necessary facts and figure of the business for proper interpretation of the financial statement of the company.
